Overview of Copper Futures:

Copper is one of the earliest metals discovered by humans, and it has been used for over three thousand years. Copper metal, symbolized by Cu, has an atomic weight of 63.54, a specific gravity of 8.92, and a melting point of 1083°C. Pure copper is light rose or pale red in color, and when an oxidized copper film forms on the surface, it appears purple.

Copper possesses many valuable physical and chemical properties:

• High thermal and electrical conductivity, second only to silver, making copper a crucial material in the electronics and electrical industries.

• Strong chemical stability and corrosion resistance, making it suitable for containers that contact corrosive substances. This property is widely used in the energy, petrochemical, and light industries.

• High tensile strength, weldability, plasticity, and ductility. Pure copper can be drawn into fine copper wire or made into thin copper foil. It can form alloys with zinc, tin, lead, manganese, cobalt, nickel, aluminum, iron, and other metals. Copper is used for various transmission and fixed parts in mechanical and metallurgical industries.

• A combination of rigidity and flexibility with a diverse appearance, often used in architecture and decoration.

In terms of country distribution, global copper resources are mainly concentrated in Chile, the United States, Zambia, the CIS, and Peru. Chile holds the world's largest copper reserves, with proven reserves of 150 million tons, accounting for about one-quarter of the world's total reserves. The United States has 91 million tons in proven reserves, ranking second, followed by Zambia.

Copper production rapidly expanded from the 1950s to the 1970s. In 1950, global refined copper production was only 3.15 million tons, increasing to 7.7 million tons by 1974. However, two oil crises led to a contraction in copper consumption, causing a significant decline in copper production. In the 1990s, copper production once again rose rapidly, with Chile being particularly notable. By 1999, Chile surpassed the United States to become the world's largest refined copper producer, marking the end of the United States' dominance in copper production. In 2005, global refined copper production reached 16.568 million tons, an increase of 4.7% year-on-year.

Copper consumption is largely concentrated in developed countries and regions. Western Europe is the largest consumer of copper globally, with China surpassing the United States in 2002 to become the second-largest market and the largest copper consumer. Since 2000, the growth rate of copper consumption in developing countries has far exceeded that of developed countries. The share of copper consumption in Western Europe and the United States has decreased, while Asia (excluding Japan), represented by China, has become the main driver of copper consumption growth. In 2005, global copper consumption was approximately 16.964 million tons, a 1.5% increase from 2004, with China leading the growth with 3.665 million tons consumed.

Major Exporters of Copper Ore: Chile, the United States, Indonesia, Portugal, Canada, Australia, etc.

Major Importers of Copper Ore: Japan, China, Germany, South Korea, India, etc.

Major Exporters of Refined Copper: Chile, Russia, Japan, Kazakhstan, Zambia, Peru, Australia, Canada, etc.

Major Importers of Refined Copper: China, the United States, Japan, the European Union, South Korea, Taiwan, etc.

Main Factors Affecting Copper Futures Prices:

Supply and Demand: According to microeconomic principles, when supply exceeds demand for a product, its price falls, and vice versa. At the same time, the price also influences supply and demand: when prices rise, supply increases and demand decreases, and vice versa. Therefore, prices and supply-demand are mutually influential.

An important indicator reflecting supply and demand is inventory. Copper inventory is divided into reported and non-reported inventory. Reported inventory, also known as “visible inventory,” refers to inventory in exchange warehouses. Major exchanges for copper futures trading include the London Metal Exchange (LME), the COMEX branch of the New York Mercantile Exchange (NYMEX), and the Shanghai Futures Exchange (SHFE). These exchanges regularly report designated warehouse inventories.

Non-reported inventory, also known as “hidden inventory,” refers to the inventory held by producers, traders, and consumers globally. These inventories are not regularly disclosed, making them difficult to track. As a result, exchange inventories are often used as a measure.

Domestic and International Economic Conditions: Copper is an important industrial raw material, and its demand is closely tied to the economic environment. During economic growth, copper demand increases, driving up prices, while in economic recessions, copper demand shrinks, leading to a decline in prices.

Two important indicators for macroeconomic analysis are economic growth rate (or GDP growth rate) and industrial production growth rate.

Import and Export Policies: Import and export policies, particularly tariff policies, control the import and export volume of a commodity by adjusting its costs, which helps balance domestic supply and demand.

Changes in the Copper-Using Industry: Consumption directly affects copper prices, and the development of copper-using industries impacts consumption. For example, in the 1990s, the demand for copper in the construction industry, particularly for copper pipes, surged, making construction the largest copper-consuming sector and driving copper prices up. Since 2003, China’s real estate and electricity industries have greatly boosted copper consumption, thus supporting copper prices. In the automotive industry, manufacturers are advocating for aluminum to replace copper to reduce vehicle weight, decreasing copper consumption in the sector. Moreover, copper’s application range is expanding, with significant roles in medicine, biology, superconductors, and environmental protection. IBM, for example, has replaced aluminum with copper in silicon chips, marking the latest breakthrough in copper’s application in semiconductor technology. These changes will affect copper consumption to varying degrees.

Copper Production Costs: Production costs are a key factor in determining commodity price levels. Copper production costs include smelting and refining costs. Different mines have different production cost calculations, but the most common economic analysis uses “cash flow breakeven costs,” which decrease as by-product values increase. Since the 1990s, production costs have been on a downward trend.

Currently, the average comprehensive cash cost of pyrometallurgical copper production in Western countries is about $0.70-$0.75 per pound, and hydrometallurgical production costs about $0.45 per pound. Hydrometallurgical copper production accounts for about 20% of total output. Domestic production cost calculations differ from international ones.

Fund Trading Direction: Although the history of the fund industry is long, it only developed rapidly in the 1990s, and during this period, the degree of fund involvement in commodity futures trading increased significantly. Looking at the copper market evolution over the past decade, funds have played a role in accelerating major market trends.

Funds come in various sizes and with different strategies. Generally, funds are divided into two main types: macro funds (e.g., arbitrage funds), which are large in size, ranging from tens to hundreds of billions of dollars and engage in long-term strategic investments, and short-term funds, managed by CTAs (Commodity Trading Advisors), which are smaller in scale, usually in the tens of millions of dollars, and rely on technical analysis for short-term operations.

Looking at the copper price and non-commercial positions (which are generally considered speculative positions held by funds) on COMEX, there is a strong correlation between copper price fluctuations and fund positions. Additionally, because funds tend to have a deep understanding of the macroeconomic fundamentals and can anticipate market trends, understanding their movements is key to grasping market trends. From recent years, especially since 2005, funds have been a major driver of rapid and significant increases in copper prices.

Price Fluctuations of Related Commodities (e.g., Oil): Both crude oil and copper are essential industrial raw materials, and their demand reflects economic conditions. In the long term, the prices of oil and copper are positively correlated with economic development. Since both oil and copper are closely linked to the macroeconomy, there is a certain degree of positive correlation between oil and copper prices. However, this is only a trend-based alignment, and in the short term, the positive correlation between oil and copper prices is not particularly strong.

Exchange Rates: Copper is traded internationally in US dollars, and currently, most major currencies adopt floating exchange rates. With the launch of the euro on January 1, 1999, the international foreign exchange market became a three-way competition between the US dollar, euro, and Japanese yen. Since the exchange rates between these major currencies fluctuate significantly, the international copper price, quoted in dollars, is affected by exchange rates. This can be seen from the dramatic depreciation of the dollar against the yen in 1994-1995, the continuous weakness of the euro from 1999-2000, and the depreciation of the dollar from 2002-2004.

Based on past experience, changes in the yen and euro exchange rates can cause short-term fluctuations in copper prices but do not alter the long-term trend in the copper market. Although exchange rates influence copper prices, the fundamental determinant of copper price trends remains the supply and demand relationship for copper, with exchange rates only potentially affecting the extent of price fluctuations.

1. Supply and Demand Situation

1.1 Crude Oil Characteristics

Crude oil, also known as "black gold," refers to unprocessed natural oil directly extracted from oil wells. It is a combustible substance consisting of various hydrocarbons, typically a black-brown or dark green viscous liquid or semi-solid. Crude oil is often found alongside natural gas and has a relative density of less than 1. It is a complex mixture of multiple components. After refining, crude oil can be processed into various petroleum products such as gasoline, kerosene, diesel, and lubricating oils. Crude oil is a crucial energy source, and its products are essential in national defense, science, industry, agriculture, transportation, and daily life.

1.2 Crude Oil Processing Industry Chain

The petrochemical industry can be divided into three main sectors based on the relationship between raw materials and products: upstream, midstream, and downstream. The upstream sector refers to the exploration and production of crude oil and natural gas, often referred to as the exploration and production sector. The midstream sector involves the initial refining of crude oil into various petroleum products and basic petrochemical raw materials through processes like distillation, catalytic cracking, catalytic hydrogenation, and more. The downstream sector includes refineries, chemical plants, distribution, and sales of petroleum products. The downstream industry includes thousands of oil products and chemicals, such as gasoline, diesel, aviation fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, and fertilizers.

1.3 Crude Oil Production and Consumption

Global crude oil production is mainly concentrated in the Middle East, North America, and Europe/Asia regions. The leading crude oil producers are the United States, Saudi Arabia, Russia, and China. The major consumers are the United States, China, and Japan. According to BP’s 2016 World Energy Statistical Review, the world’s proven crude oil reserves amounted to 1,697.6 billion barrels, with an annual consumption of 34.7 billion barrels.

2. Key Factors Affecting Crude Oil Prices

The factors influencing crude oil prices can be broadly divided into supply-demand relationships and non-supply-demand factors. The supply-demand relationship is the fundamental factor in determining oil prices. On the other hand, since crude oil has become a financial product through futures markets, its crucial strategic role also makes political factors, the U.S. dollar, and speculative activities important price determinants. The main influencing factors are summarized as follows:

2.1 Supply-Demand Relationship

The relative strength of crude oil supply and demand plays a fundamental role in the formation of oil prices. Crude oil production and inventory levels determine supply, while economic growth drives demand.

2.2 Political Factors

As a vital strategic resource, crude oil is inherently tied to politics. Major fluctuations in oil prices have often been linked to geopolitical events, such as the Middle East wars and U.S. military actions in Iraq.

2.3 U.S. Dollar Factors

International crude oil prices are typically quoted in U.S. dollars. When the dollar strengthens, oil prices tend to fall, while a weaker dollar usually results in higher oil prices.

2.4 Speculative Factors

Crude oil is a highly financialized commodity. Crude oil futures prices serve as the benchmark for global oil trade, and the flow of international capital can have a significant impact on oil prices.

3. Investment Cases

The listing of crude oil futures facilitates a country’s pursuit of pricing power and provides oil industry chain enterprises with a risk-hedging tool against price fluctuations. It is also a crucial investment instrument for investors.

3.1 Speculative Trading

Capital naturally has a speculative demand. The crude oil futures market attracts substantial funds, providing the initial momentum for the development of the oil industry. Through the futures market, traders can hedge against the negative effects of international price fluctuations and also gain profits from price volatility.

Example: On June 29, the crude oil futures price was 335 yuan per barrel. An investor believed that the sharp increase in U.S. shale oil and Middle Eastern oil production would cause oil prices to fall. Therefore, they shorted 10 crude oil futures contracts. By August 24, when the price dropped to 250 yuan per barrel, the investor decided to buy and close the position, realizing a net profit of (335 yuan/barrel - 250 yuan/barrel) * 1000 barrels * 10 contracts = 850,000 yuan.

3.2 Corporate Hedging

Hedging is a futures trading strategy aimed at mitigating the risk of spot price fluctuations. By buying or selling an equivalent amount of futures contracts alongside buying or selling the physical commodity, businesses can offset losses or gains in spot market transactions with futures market profits. This creates a hedge mechanism between the "spot" and "futures" markets, minimizing price risks. By hedging, companies can stabilize production costs or expected profits, thus enhancing their ability to withstand market price risks.

Example: On May 20, a refinery learned that the price of domestic medium-sulfur crude oil was 295 yuan per barrel. Fearing future price increases, they decided to hedge by purchasing 100 crude oil futures contracts on the Shanghai International Energy Exchange. With a margin ratio of 10%, the futures contract required approximately 3 million yuan in margin. The trading and profit/loss situation is shown in the table.

4. Tips

Unit Conversion: Barrels (bbl) and tons (t) are common units for measuring crude oil. Western countries like OPEC and the U.S. use barrels, while China and Russia typically use tons. The conversion is as follows: 1 ton is approximately equal to 7 barrels. For lighter crude oils, 1 ton equals around 7.2 to 7.3 barrels.

In the U.S. and Europe, gas stations typically use gallons, while Chinese gas stations use liters. Conversion: 1 barrel = 42 gallons; 1 gallon = 3.78543 liters. Thus, 1 barrel = 158.99 liters.

Overview of Corn Futures:

Corn belongs to the grass family and is an annual herbaceous plant. Among the world's three major grains, corn ranks first globally in both total production and average yield. China's corn cultivation area and total production rank second in the world. Corn has a broad planting range among cereal crops worldwide. North America has the largest corn planting area, followed by Asia, Latin America, and Europe. Corn accounts for over 65% of global coarse grain production and 90% of China's coarse grain output. Corn kernels contain 70-75% starch, about 10% protein, 4-5% fat, and about 2% various vitamins. More than 3,000 processed products are made using corn as a raw material. Corn is the primary ingredient in the production of compound feed, generally accounting for 65-70%.

Corn is also one of the world's most important food sources, particularly in some African and Latin American countries. Currently, about one-third of the global population relies on corn as a staple food.

As one of the earliest introduced types of futures, agricultural futures account for a significant proportion of commodity futures. At present, agricultural futures represent the largest trading volume category, with steady growth, accounting for approximately 43% of total commodity futures trading, far exceeding the trading volumes of energy and metal commodity futures. Corn futures rank second in trading volume in the international commodity futures market. In the domestic futures market, agricultural futures exhibit substantial trading volume and open interest. The industrial demand for corn is high, its price fluctuations are relatively stable, and it has a long supply chain with widespread enterprise participation and significant influence. These factors make hedging and investment in corn futures highly attractive to enterprises. Corn's inherent seasonal volatility adds to its investment appeal, making it a perennial favorite in the international futures market. As institutional clients, especially commodity funds, and financial institutions enter the market in the future, the unique characteristics of agricultural futures will become even more appealing to these investors.

Factors Affecting Corn Prices:

Corn Supply:

Historically, in the international corn market, the United States accounts for over 40% of production, China accounts for nearly 20%, and South America accounts for about 10%. These regions are the primary producers of corn, with their output and supply significantly impacting the international market, particularly U.S. corn production, which is the most critical factor influencing global supply. Other countries and regions have lower production shares and relatively minor impacts on the international market.

Corn Demand:

The United States and China are both major corn producers and consumers. Other significant consumers include the European Union, Japan, Brazil, and Mexico. Changes in demand from these countries significantly impact corn prices. In recent years, the rapid development of corn deep processing industries in major consuming countries has greatly increased corn demand.

Domestically, corn consumption mainly comes from food, feed, and industrial processing. Food consumption shows little overall change and has a relatively minor market impact. Feed accounts for the highest proportion, over 70%, and fluctuations in feed demand have a substantial market impact. Industrial processing accounts for about 14% but has grown rapidly in recent years, with annual usage increasing by over 2 million tons, significantly influencing the market.

Corn Import and Export:

Corn imports and exports significantly impact the market. Imports increase domestic supply, while exports raise overall demand. Internationally, it is crucial to monitor major exporters like the United States, China, and Argentina, as well as importers like Japan, South Korea, and Southeast Asian countries. Changes in production and consumption in these countries directly affect international corn trade. Domestically, attention should be paid to export policies, as exports have a noticeable stimulating effect on the domestic corn market.

Corn Inventory:

The level of inventory for a commodity at any given time reflects changes in supply and demand. Studying inventory fluctuations helps in understanding corn price trends. Generally, when inventory levels rise, supply is ample; when they fall, supply tightens. Ending inventory levels and corn prices often show an inverse relationship.

Corn Cost-Benefit Analysis:

Cost-benefit analysis for corn is a primary factor influencing farmers' planting enthusiasm. Corn costs impact market prices to some extent. When market grain prices are too low, farmers may withhold sales. Profitability affects planting plans for the following year; increased profits may lead to expanded planting areas, while decreased profits may reduce them.

Price Ratios with Other Agricultural Commodities:

The price ratio of corn to other major agricultural products affects corn's supply and demand, influencing its production and sales, ultimately affecting future price trends. The price ratio between corn and soybeans (for planting) and between corn and wheat (for consumption) is particularly important.

Financial and Monetary Factors:

Interest rate changes and exchange rate fluctuations are common phenomena in global economic activities and often cause commodity futures price fluctuations. Generally, when a currency depreciates, corn futures prices rise; when a currency appreciates, futures prices fall. Therefore, monetary interest and exchange rates are key factors, alongside supply, demand, and economic cycles, in determining corn futures prices.

Economic Cycles:

The world economy develops through alternating cycles of prosperity and recession, a fundamental characteristic of modern economic society. Economic fluctuations occur across almost all sectors during these cycles. Economic cycles, reflected in national income fluctuations, affect production, employment, price levels, interest rates, and other economic indicators. Corn prices also fluctuate in response, making macroeconomic analysis of cycles crucial.

Storage and Transportation Costs:

Changes in factors like crude oil prices, ocean freight rates, and transportation capacity shortages affect transportation costs and, consequently, corn prices.

Basic Concepts

Soybean Futures

Soybean futures are contracts where soybeans are the underlying asset, allowing traders to buy and sell soybeans at a pre-determined price at a future date. This financial instrument not only provides market participants with risk management opportunities but also has a profound impact on the global agricultural industry.

Soybeans are annual herbaceous plants belonging to the legume family, commonly known as yellow beans. China is the origin of soybeans and has a history of over 4,700 years of soybean cultivation. In contrast, soybean cultivation in Europe and the United States is much shorter, as it was introduced from China in the late 19th century. By the 1930s, soybean cultivation had spread worldwide.

Soybeans can be divided into genetically modified (GM) and non-genetically modified (non-GM) varieties. In 1994, Monsanto in the U.S. introduced genetically modified herbicide-resistant soybeans, which became the first GM soybean variety to be approved for commercial use. By 2001, 46% of the world's soybean planting area was occupied by GM varieties. The United States and Argentina are the primary producers of GM soybeans, while China primarily cultivates non-GM soybeans.

Soybeans are an important dual-purpose agricultural product, used both as food and oil. As food, soybeans are a high-quality, protein-rich plant source, with fat, protein, carbohydrates, and fiber composition ratios very similar to those of meat products. Soybeans contain 35-45% protein, which is 6-7 times higher than cereal crops. The United Nations Food and Agriculture Organization strongly advocates the development of soybean-based foods to address protein deficiencies in developing countries. As an oilseed crop, soybeans are the world's primary provider of plant oil and protein meal. Each ton of soybeans produces approximately 0.18 tons of soybean oil and 0.8 tons of soybean meal. Soybean oil, derived from soybeans, is of high quality and nutritional value, making it a major edible vegetable oil. As a byproduct of soybean oil extraction, soybean meal is primarily used as a protein supplement for poultry, pigs, and cattle, with a smaller portion used in brewing and pharmaceutical industries.

Agricultural futures, as one of the earliest types of futures contracts, occupy a significant share in commodity futures. Agricultural commodities have the largest trading volume, showing steady growth and consistently accounting for about 43% of total commodity futures trading, far exceeding the trading volumes of energy and metal commodity futures. In the domestic futures market, agricultural futures have large trading volumes and open interest.

With the entry of institutional clients, especially commodity funds and financial institutions, the unique characteristics of agricultural commodities will become increasingly attractive to institutional investors. Soybeans, as one of the major commodity futures, remain among the top three in the international market. Soybean prices are volatile, the supply chain is long, and many companies are involved, which broadens the impact and intensifies the hedging and investment demand. The seasonal volatility of soybean prices makes them highly attractive for investment, turning soybeans into a perennial favorite in the international futures market.

2. Exchanges and Contract Specifications

Soybean futures are primarily traded on the Chicago Mercantile Exchange (CME). Each contract represents a specific quantity of soybeans, such as 5,000 bushels. Contract specifications also include delivery months, minimum price fluctuation units, etc., providing clear trading rules for market participants.

3. Market Participants

Participants in the soybean futures market include farmers, traders, processors, investors, and speculators. Farmers and processors typically use the futures market to lock in future sales and purchase prices, mitigating the risks associated with market price fluctuations. Investors and speculators, on the other hand, buy and sell futures contracts to profit from price movements.

Key Factors Influencing Soybean Prices:

Soybean Supply Analysis

Soybeans globally are harvested in two peak periods, based on the hemispheres. In South America (Brazil and Argentina), soybean harvesting occurs from March to May, while in the Northern Hemisphere (U.S. and China), harvesting takes place from September to October. Therefore, soybeans are concentrated in supply every six months.

The U.S. is the world's largest supplier of soybeans, and any changes in its production significantly impact the global soybean market. China, one of the largest importers of soybeans, sees fluctuations in genetically modified soybean imports and prices that directly affect the domestic soybean supply market, consequently influencing the price of non-genetically modified soybeans. As a result, soybean import volumes and prices have a significant impact on domestic soybean prices.

Main Factors Influencing Yellow Soybean Prices:

Soybean Supply Analysis

Globally, soybeans are harvested in two main periods, corresponding to the hemispheres. In South America (Brazil, Argentina), the soybean harvest period is from March to May, while in the Northern Hemisphere (United States, China), the harvest period is from September to October. As a result, soybeans experience concentrated supply every six months.

The United States is the largest supplier of soybeans globally, and any changes in its production have a significant impact on the world soybean market. China is one of the largest importers of soybeans in the international market, and the import volume and price of genetically modified soybeans directly affect the domestic soybean supply market, thereby impacting the price of non-genetically modified yellow soybeans. Therefore, the import volume and price of soybeans have a major influence on domestic soybean prices.

Related Commodity Prices

As a food product, substitutes for soybeans include peas, mung beans, and kidney beans. As an oilseed, substitutes for soybeans include rapeseed, cottonseed, sunflower seed, and peanuts. Changes in the production, prices, and consumption of these substitutes have an indirect effect on soybean prices.

Soybean prices are directly linked to its by-products, such as soybean oil and soybean meal. Changes in the demand for these two products directly affect the demand for soybeans, thereby impacting the price of non-genetically modified yellow soybeans.

International Soybean Market Prices

China's soybean imports account for a significant proportion of the world's soybean trade, and international soybean prices have a reciprocal influence on domestic soybean prices. When international soybean prices rise, it impacts the volume of domestic soybean imports, which affects the domestic soybean supply, thus influencing the demand for domestic non-genetically modified yellow soybeans and driving up their prices. Additionally, an increase in international soybean prices can influence market sentiment, creating expectations that domestic soybean prices may rise, which can also cause futures prices to increase.

Storage and Transportation Costs

Transportation costs have a significant impact on yellow soybean prices. With imported soybeans accounting for over 60% of domestic consumption, international shipping prices, which directly influence imported soybean prices, will directly affect domestic yellow soybean price fluctuations. Additionally, regional transportation capacity shortages within the domestic market can drive up transportation costs, indirectly stimulating an increase in yellow soybean prices. Therefore, factors related to shipping, such as transportation capacity shortages, oil prices, and steel prices, also serve as indirect factors influencing yellow soybean prices.